Opinion || Oil and Gas Lawyer. Elison Karuhanga.
I have read a number of allegations that the oil companies and the government are secretly dealing in Uganda’s oil. The allegation is that trucks/trailers are being used to export our oil as the common man waits for production to start.
I can say without fear of contradiction that this particular allegation is untrue, false and utterly ridiculous. It is sad that the allegation is coming from minds capable of better things. I hope in this simple piece to demonstrate this as clearly as possible. Let us start by agreeing on the basic facts.
Oil companies like TOTAL and CNOOC are businesses. They are mainly here to make a profit. They will make the profit by producing and selling oil. They hope, like all businesses to make sure that when they sell the oil they will get enough money to meet their costs and have money left over-this is called profit. So, let us agree that their motive is not hidden. Their motive is profit.
The second fact we can agree on is that the oil is mainly got from underground. When it comes out of the ground it is in its “raw form”. This “raw form” is what we call crude oil.
Would oil companies make profit if they secretly put the crude oil in trailers and drove it to Mombasa? The answer is no. In fact it would be one of the worst business decisions ever taken in the history of business.
How is oil transported?
Crude oil is mainly transported across borders and over long distances by pipelines. The reason why Uganda plans to build a pipeline is not because pipelines are fashionable and not because we lack trucks. It is because the pipeline is the most cost effective way to transport crude oil. Uganda’s oil will be transported to Tanga in Tanzania. From Hoima to Tanga is about 1,455 km. From Hoima to Mombasa is around 1,375 km. The cost of transportation in the pipeline ranges between US$ 12.2 to US$ 15 per barrel. For the sake of argument we shall assume Uganda will pay a tariff of US$ 20 per barrel and not 12 dollars. That is about 70,000 shillings. A barrel of oil is equivalent to 159 liters. Therefore to transport cargo of 159 liters of oil in the pipeline for a distance of 1,455 km it would cost UGX 70,000.
If an oil company decided instead to use a truck how much would it cost? Let us ignore the risks associated with road transport, the cost of repair, the cost of the drivers etc and just look at the cost of fuel in the oil tanker.
The average cost of fuel in the tanker from Mombasa to Hoima and back to Mombasa would be in the region of UGX 5,000,000. The cost of road transport for crude oil is therefore seventy one times more expensive than the cost of transport in a pipeline. Why would even a terrible businessman go for the road transport route?
Not only is road transport more expensive it also completely wipes out any chance of profit for the oil company. Remember the oil tanker/trailer is carrying crude oil. The product which is going to be sold is crude oil. The cost of 1 barrel of crude oil is around US$ 59 (Uganda Shillings 218,300). So why would anyone transport cargo worth UGX 218,300 at a cost of UGX 5,000,000? Even a bad business cannot make such a decision.
As a simple issue of cost there is no benefit, not even a remote one from transporting oil by road to Mombasa or Tanga.
Cost is not the only issue. Using trucks to carry crude oil from Hoima would be a logistical nightmare. Many books have been written explaining this very point. Valcalv Smith in his book “Oil: A Beginners Guide” said, “replacing a 1000 km pipeline carrying 20,000 tons of oil a day with tanker trucks (assuming each truck holds 25tons and covers 1,000 km a day) would need a fleet of 1,600 vehicles with a load arriving every 54 seconds.” In our case the coast is 1,455 km away. We would probably need 2,000 trucks to transport Ugandan oil.
It is also worth noting that trucks of a certain weight are not allowed on the road. Long distance travelers in Uganda will have noticed at different points these things manned by UNRA called weigh bridges. The weigh bridge measures the weight of the truck. In this case the 2000 heavy trucks arriving in Hoima every 54 seconds (at all hours of the day) would not last a month since they would simply make a large chunk of the road network impassable.
When the crude oil will eventually be pumped out, it will first be taken to what is called a Central Processing Facility. Here the oil will be separated from other impurities like mud, stones etc. Only crude oil will go to the pipeline. Once in the pipeline it will be heated because Uganda has waxy crude oil that needs heating. So these trucks are they taking Crude Oil, mud, water, stones etc? Or are these trucks fitted with mini Central Processing Facilities? If they are, then Uganda will be the 1st country on earth to have imported them from God knows where (unless we are secretly manufacturing these trucks.)
Even if the trucks would process the crude, it would still need to be heated. One wonders if these magical trucks are also fitted with solar panels.
The whole thing is impractical, not profitable, not possible, not necessary and absurd.
Disclaimer: We as Bunyoro Sqoop we welcome any opinion by any one if it’s of a constructive use to the Development of Bunyoro and Uganda at large. All the expressions and opinions in this write-up are not of Bunyoro Sqoop but for the author of the article.